Inside Cinven’s inaugural financial services fund

The firm gathered €1.5bn for its fund dedicated to the strategy, which will mainly target platform acquisitions in mid-market Europe.

Cinven has held a final close on one of the largest financial services funds focused on Europe, raising €1.5 billion for its inaugural fund for the strategy.

The firm began raising capital for the Strategic Financials Fund in “heat of covid in 2020”, with the idea behind it based on an investment-led proposition, Luigi Sbrozzi, partner and co-head of the fund, told Private Equity International.

“There were lots of good investments we’ve seen in that part of the market, and we thought that notwithstanding the challenging market condition around that time – Q2 of 2020 – it was the right thing to do.”

Capital raised from the fund will be deployed in life and non-life insurance and reinsurance, asset-backed speciality finance, wealth management, insurance distributors and other “capital-light” financial service providers, according to a statement.

Three investments have been made so far from SFF: Miller, a specialist insurance and reinsurance broker, which was acquired in partnership with GIC; Compre, a consolidator of closed books of non-life insurance policies, acquired alongside British Columbia Investment Management Corporation; and International Financial Group, a UK-based life insurance provider.

Cinven plans to make between six and 10 investments from the vehicle and expects to secure the fourth deal by year-end, Sbrozzi said. The firm aims to deliver a 3x return on invested capital, he added.

Typical investments from SFF will target the European mid-market with cheques smaller than €600 million. Buy-and-build transactions are a focus.

Luigi Sbrozzi, Cinven
Sbrozzi: ‘We’ve never had a normal market environment for SFF from day one’

Sbrozzi noted that Cinven has done fewer platform deals in the flagship fund because of its size. The firm gathered €10 billion for the Seventh Cinven Fund in 2019, exceeding its €8 billion target.

Investors in the fund include sovereign wealth funds, pensions and university endowments. The major difference from the main fund, Sbrozzi notes, is SFF’s greater capital allocation from insurance companies, which were attracted by its specialist nature.

“They found the proposition was quite interesting because they understand the actual underlying assets we plan to invest in. We also had new LPs who were looking for exposure to European financial services,” he added.

Investing in the new normal

Cinven’s move to launch an industry-focused fund came at an interesting time.

“We started during covid, so we never had a normal market environment. The world has been disrupted from day one,” Sbrozzi said.

He noted that the SFF team’s approach in general is focused on asymmetric risk. “Either contractually or by the nature of the business, we have strong downside protection in the types of assets and companies we buy, as well as upside potential from roll-ups and M&A.”

That said, SFF’s seven-strong investment team “is being thoughtful about the right value of assets in private markets, because you can easily get spooked by the fact that everything is trading down 50 percent”, he said.

The value of private equity transactions in Europe’s financial services sector reached €51 billion in 2021, 47 percent larger than in 2020, PitchBook data shows. The insurance subsector accounted for the bulk of European PE financial services deal activity over the past decade. PE deal volume for insurance brokers has increased around 8.5 times from 10 years ago and hit a record of about 80 percent of all insurance deals in 2021, according to the data provider. Buy-and-build transactions dominated deal activity last year, at about 84 percent of all deal activity.

Cinven is also in the market with its eighth flagship vehicle, seeking as much as $12 billion, according to a report from Bloomberg. The firm declined to comment on fundraising.

Simpson Thacher advised Cinven on its Strategic Financials Fund.